How to define depreciation and more for assets

Path in CC5: System settings - Assets - Category - Edit

You can define a book value, markets value or down payment for all assets within a certain asset category. The rules you apply here will be valid for all assets with this category on their asset card.

Note!
All values you enter here are fixed values that cannot be overwritten by the user when editing the asset card. If you want to give the users more flexibility, you can leave the fields Scrap value, Monthly adjustment factor, Minimum markets value or Monthly down payment empty so that they can set individual values per asset for these fields.

Method of deprecation: Here you can select the correct method of depreciation for the assets within this category.

  • Linear depreciation: Depreciation of an asset with equal amount each year during the asset's economic life.
    Formula: At = (K - S) / N
    A: Depreciation, t: Year, K: Cost price, S: Scrap value, N: Amount of years for depreciation

  • Balance depreciation: Depreciation with a certain percentage based on the current book value. This means the total amount for depreciation will reduce with each accounting period.
    at= pK0(1 - p)t - 1
    a: Depreciation, t: Year, K0: Cost price, p: Depreciation percentage

    Tip!
    The depreciation amount and the balance due will be quite low at a certain point of time. Therefore, many companies decide to depreciate the complete balance due once it is low enough (see Limit for expense recognition)

Economic life of the asset: This is the expected economic life of the asset which means the time it is cost-beneficial for the company to keep the asset instead of exchanging it with a new one.

Add adjustment: You can add adjustments that shall be active from and with a certain date.

Scrap value (displayed when selecting linear depreciation): The lowest value of the asset before it is cost-beneficial for the company to exchange it. Once you enter a value, this value will be fixed for all assets in this category. If you want to give more flexibility for single assets, leave this value open so that the user can define it per asset.

Limit for expense recognition (only displayed when selecting balance depreciation): When selecting balance depreciation, the balance due will practically never be "0". Therefore, it is possible to post the remaining amount directly once this limit is passed.

Use market value calculation: If you select Yes the system will calculate the asset's current market value base on the adjustment factor and the procurement date.

Adjustment factor: This is the number the asset value is multiplied with each month. Once you enter a value, this value will be fixed for all assets in this category. If you want to give more flexibility for single assets, leave this value open so that the user can define it per asset.

Example:
 If the adjustment factor is 0,9 per month, this means the value will fall with 10% each month. The yearly adjustment factor will then be 0,912 = 0,2824. The result is that the value is reduced with 71,8% after one year.

Minimum market value: The market value will never be below this value. An adjustment factor over 1 will result in an increasing market value. Once you enter a value, this value will be fixed for all assets in this category. If you want to give more flexibility for single assets, leave this value open so that the user can define it per asset.

Here you can define a fixed monthly down payment amount. When entering the value under Monthly down payment amount, the amount is fixed for all assets in this category.